Being just past the big filing deadline there has been some coverage about the U.S. tax system that has got me thinking. It seems like everyone agrees that what we have now is a big unwieldy mess. Then again, no one seems able to agree on how to fix it.
The piece that started my interest was on CBS Sunday Morning.
They interviewed Nina Olsen, the Taxpayer Advocate at the IRS.
The American tax system is not only a mess, but an "extraordinarily complex" mess ... and not just for individuals, for corporate entities, businesses," says Nina Olson - of the Internal Revenue Service.
There was the usual back and forth about how unnecessarily complicated our tax code is. Then a bit about how unfair tax rates can be.
They chimed in about how the CATO institute claims that the most tax breaks are for the middle class. I'm just not buying that one. Not buying the old song and dance about how taxing the wealthy hurts the economy either.
One thing they specifically pointed out was the mortgage interest deduction. I certainly wouldn't argue that this deduction targets low income families. That said, a chart in the Next Economy, a special supplement to The Atlantic, shows that the deduction accrues mostly to the wealthy with households earning $100K to $200K receiving 39% of the benefit while households at $200K and over get 30%. Families earning $100K or less share the remainder. The source was the Joint Committee On Taxation.
CBS did offer a rebuttal for the trickle down meme with a quote from Patriotic Millionaires for Fiscal Strength.
"Every time I get a tax cut, I get richer," said Hindery. "I don't buy one thing that I don't already have. I don't put money back into the economy. I just get richer.'
The last bit, and the one that got me thinking, was once again from Nina Olson. She said that the underground economy is the biggest hole in the tax net. Unreported tips, cash payments, paid under the table, - supposedly the nickels and dimes of all the peonage add up to a bigger total than the accounting loopholes exploited by big money. I suspect that is because these dollars aren't just slipping under the income tax radar, but because they are also avoiding FICA.
So what could we do instead that would be both simple, and fair? Personally I would leave FICA alone, other than taking the cap off of Social Security witholding. A simple progressive income tax with no deductions would be alright with me. I admit to possible bias as we have never had itemized deductions above the standard deduction even with a child, mortgage interest, and education expense.
But what about the bottom? What about the cash economy? Or the really underground economy, the illegal economy?
A Federal retail sales tax is all I can come up with. Doesn't have to be very big...10% maybe? Could do a rebate of some kind for families at, or below poverty.
What would the number look like if we had a national sales tax that excluded grocery store food/prescription drugs and paired that up with something like no income tax on the first X dollars of income? What if singles were excluded for $50K and families for $75K? Income above that would be taxed at progressively higher rates with no deductions; a one sheet of paper federal tax return.
Could we live with it? Would it work?